Monthly Archives: November 2017

The legal cannabis industry is rapidly expanding, and despite some of the unwarranted controversy clouding the market, it’s being viewed with more legitimacy than ever before. However, there’s one niche within the cannabis industry that’s projected to do especially well over the next couple of years—the widely untapped CBD market.

CBD Market Expected To Explode

According to Grand View Research, the worldwide medical cannabis market is projected to exceed $55.8 billion by 2025. As a result, the CBD market is expected to explode.

The Hemp Business Journal has estimated that the CBD market could reach $2.1 billion by the year 2020, with $450 million coming from hemp based-sources.

“The CBD Report is the culmination of more than a year of focused market research,” said Hemp Business Journal founder and publisher, Sean Murphy. “We’ve been to Israel, Europe, Canada and to farms, labs and retailers across the U.S. to cover the hemp industry. By analyzing consumer sales in the hemp and marijuana industries, we’ve provided the first view to investors, executives and regulators on what’s really happening with CBD, the hottest category in the broader multi-billion dollar cannabis industry.”

While the data for 2017 is not yet fully available, the $2.1 billion figure would be a 700 percent increase from the CBD market’s 2016 numbers, which were around $200 million.

Matt Karnes, a financial consultant for Greenwave Advisors, a company specializing in cannabis investing, projects an even higher ceiling for CBD in the near future.

“In terms of the CBD market size, I estimate an almost $3 billion market by 2021. Right now there are 15 states that allow CBD only—this is in addition to the 28 states plus DC that have legalized medical marijuana.”

Final Hit: CBD Market Expected To Reach $2.1 Billion By 2020

What makes CBD so appealing for medical patients, as well as investors, is that it doesn’t actually get its users “high,” like a traditional cannabis plant. CBD or cannabidiol, is the non-psychoactive component of cannabis. Most forms of CBD-based drugs contain little to no THC, the component known for its psychoactive effects.

Due to its harmless nature, CBD legalization has been ramping up in recent years. States, and even countries, that are still behind the eight-ball on cannabis legalization have begun to start legalizing CBD for medicinal purposes.

However, despite its non-psychoactive tendencies and increasing legality, there are question marks surrounding how the government views CBD. While it isn’t explicitly mentioned in the Controlled Substances Act, the DEA still considers it a Schedule I narcotic, like cannabis.

Unfortunately for consumers, government restrictions currently make it difficult for users to become educated on CBD and its plethora of medicinal uses.

But despite government sanctions, CBD use continues to grow.

According to a recent report, CBD use in the UK has more than doubled since it was legalized for medical use last October. Additionally, it appears like it’s garnering traction among non-cannabis users as well. According to a poll from Outco, one of the biggest licensed cultivators in Southern California, 38 percent of users and non-users said that they wanted to learn more about CBD oil.

With CBD becoming more and more of a viable form of medication, a $2.1 billion figure almost seems modest.

As legal cannabis continues to make headway integrating into society’s mainstream, industry entrepreneurs and regulators in 420-friendly states have had to switch gears, turning their collective attention away from public smoking arrests and small-time dealing, to the bureaucratic red tape wrapped around issues like licensing, pesticide testing, and driver safety. As part of that shift from criminal concerns to administrative action, new studies from every corner of the legal weed world have finally been able to shine some quantitative insights into what’s happening on the ground with the previously outlawed plant.

Like alcohol and tobacco before it, the cannabis industry has had plenty of detractors, arguing that billboards with pictures of big fluffy buds or edibles shaped like brownies might attract children to the drug, or spread the wrong idea about a substance that, in some states, is legal strictly for medical use. Unlike big tobacco or the liquor industry, who used characters like Joe Camel and advertised flavored malt liquor for years before strict legislation was enacted to corral the image of those deadly products, the cannabis industry has not had that same benefit of ignorance, with local and state officials challenging legal weed ads in states like California and Washington soon after legalization.

According to the research from Oregon public health experts, a little over half of all respondents said they encountered legal weed advertisements during fall of 2015 and spring of 2016, with those numbers breaking along the same halfway mark across all of the study’s demographically-sorted gender, race, and age cohorts; yet their exposure didn’t make them more likely to pick up some pot.

Even when it came to cannabis teetotalers, slightly more than 50% of sober Oregonians say they recall seeing cannabis ads during that same period, suggesting that a dispensary billboard might not have the same influence as anti-cannabis advocates have claimed in persuading non-users to give the plant a try.

“Most adults reported exposure to marijuana advertising following the start of retail marijuana sales in Oregon,” the report concludes. “People who do not use marijuana and those aged 18 to 24 years were as exposed to advertising as other groups.” Even areas with higher quanities of cannabis ads didn’t experience changes in use.

In addition to the findings about commercial advertising exposure, the study looked at exposure to “marijuana health risk messages,” with the state’s required point-of-sale warnings about cannabis use during pregnancy, child safety precautions, and DUI warnings representing a vast majority of those engagements.

Even with the Oregon study representing a significant piece of evidence in the argument that public legal weed advertising does not cause the reefer madness some politicians expected, the issue of cannabis commercials is far from resolved.

With more brands entering the ruthlessly competitive green rush every day, cannabis companies are faced with an interesting challenge: to both differentiate their brand from so many others, while simultaneously trying their best to meet even de-facto standards of accepted public imagery for the controversial product. But with the federal prohibition on pot still standing, states will need to continue developing their own standards for the acceptable marketing of marijuana.

IBM suggests the blockchain idea to regulate and track marijuana sales from seed to smoker.Bitcoin’s technology could help regulate marijuana sales by using a “blockchain” to track marijuana sales. Blockchain technology provides a way for all transactions to be transparent and safe from corruption. The suggestion was made to Canada by the multinational technology company based out of New York: IBM.

How Can a Blockchain Help?

Canada is planning to begin legalizing the sale of cannabis by July of next year. The regulation of distribution is to be handled at the province level, like with cigarettes and alcohol. As a result, the government of British Columbia was open to suggestions on how to regulate their cannabis sales.

That’s when IBM suggested bitcoin’s technology could help regulate marijuana sales for the British Columbian government.

IBM was also at the forefront of Walmart’s experimental blockchain. Walmart has been using a Blockchain to track how pigs from China are moved through the supply chain before reaching consumers. The hope is that the data will help companies track and reduce food spoilage to reduce disease outbreaks.

The tech company’s four-page submission to the British Columbia government plans to track cannabis sales as they move from seed to farm to distributor to consumer.

IBM submission said Blockchain’s “relevance to regulating cannabis is similar to its many chain of custody applications in areas such as pharmaceutical distribution and food chains. The core to those supply chains is the same, assuring health and safety of consumers, preventing fraud and counterfeiting while creating a foundation of transparency upon which to base regulation.”

With all transactions accounted for, the blockchain could help make sure no cannabis ends up in the hands of any minors. It could also ensure all taxes are collected, preventing any side sales to the black market.

Consumers would benefit from the knowledge of where their product originated from. In places with legal cannabis that lack regulations, companies are free to make claims that are untrue.

Final Hit: Bitcoin’s Technology Could Help Regulate Marijuana Sales

According to IBM, bitcoin’s technology could help regulate marijuana sales in British Columbia. That’s bad news for the black market but great news for anyone who wants to know the details of how their weed came to be.

“This type of transparency would bring a new level of visibility and control to the provincial regulators and provide assurance to the multitude of cautious stakeholders regarding the way the management of a cannabis supply chain is rolled out within British Columbia,” IBM said.

The state of Nevada had projected that its new recreational cannabis market would yield $50 million in additional tax revenue during its first 12 months. They’re on pace to beat that number handily.

The Las Vegas Review-Journal runs the numbers from the Nevada Department of Taxation to find that far more legal cannabis is being sold — and taxed — than the state had anticipated. For the month of September, Nevada dispensaries beat the state’s sales projections by more than $5 million, netting $27 million in sales for the month.

In anticipation of the January 1st “green rush” bonanza of California officially adopting adult recreational use of marijuana, the California Bureau of Cannabis Control has issued 278 pages of rules and regulations governing its sale. In a November 16 release, the bureau announced its guidelines that will combine medicinal sales and recreational sales under one regulatory framework.

These guidelines are just an interim, emergency first set of rules for businesses who intend to begin operation on January 1, 2018. Licenses that any business receives will only be valid for 120 days, in hopes of a permanent framework being prepared in the early months of 2018.

“Now, it’s going to go from the gray areas to the very black and white,” San Diego attorney Michael Cindrich told KUSA. “If you have a state license, you’re legal. If you don’t have a state license, you’re illegal.”

Notably, dispensaries are required to be located at least 600 feet from a school under the new rules. Dispensaries cannot remain open past 10 p.m. and must have 24-hour video surveillance.

The regulations have consumer ramifications as well. Serving sizes cannot exceed more than 10 mg of THC, and products cannot be manufactured in the shape of animals, fruits, or other shapes that might appeal to children.

The big snag is the requirement that dispensaries receive a legal permit from local authorities before they can apply for a state permit. Most localities, including Los Angeles and San Francisco, will not have their permit process in place by January 1.

The California cannabis market is currently valued at about $7 billion.

Doctors expected that cannabis use would pose a risk for heart failure patients, but found that the opposite was true. They also found that cannabis users were less likely to die in the hospital.

A research team has made the discovery that cannabis may have benefits for those suffering from heart problems. At a recent meeting of the American Heart Association’s Scientific Sessions, Dr. Oluwole Adegbala, medical resident at Englewood Hospital and Medical Center in New Jersey, presented the findings of an unpublished study on the link between cannabis use and heart failure. Previous research has suggested links between cannabis use and heart problems, and the research team fully expected to find evidence supporting claims that cannabis users were at greater risk of heart-related health problems.

Instead, the team was “surprised” to find that cannabis users were less likely to experience atrial fibrillation (A-fib), an irregularity of the heartbeat that can worsen the symptoms of heart failure, compared to non-users. Dr. Adegbala and his colleagues analyzed a database of over 6 million patients suffering from heart failure who were admitted to the hospital between 2007 and 2014. Around 23,000 of these patients reportedly used cannabis but were not considered dependent on the drug, and another 1,200 patients were considered dependent cannabis users, LiveScience reports.

The research team found that the non-dependent cannabis users were 18% less likely than non-users to experience A-fib, and were also 46% less likely to die in the hospital. The dependent cannabis users were 31% less likely to develop A-fib and 58% less likely to die in the hospital than non-users. Researchers adjusted their data to account for age, socioeconomic status, and use of other drugs, and discovered that their findings were still solid.

Dr. Adegbala told LiveScience that his team was not able to identify the exact reasons why cannabis might decrease the risk of A-fib or mortality for heart failure patients. Previous research in animals has found that high blood pressure and atherosclerosis, two risk factors for A-fib, can be reduced by activating cannabinoid receptors. Dr. Adegbala also noted that cannabidiol can reduce inflammation, which is another risk factor for A-fib. Despite their positive findings, the research team does not recommend that heart failure patients begin using cannabis as a treatment until further research can be conducted to support or refute the findings of this study.

In an effort to help California’s marijuana businesses to enter the financial mainstream, California Treasurer John Chiang is calling for the state to study the idea of creating a state-run bank. This is one of several recommendations made by Chiang’s after a year of studying the matter. Chiang said he and the state attorney general’s office will start such a study soon.

Under current federal guidelines, in order to accept deposits from cannabis businesses, banks are required to certify that those businesses are not selling to minors, affiliated with organized crime or breaking a handful of other rules. This basically has the effect of keeping most banks out of the marijuana business.

Last year, after the passage of Proposition 64, which legalized recreational marijuana, Chiang created a working group of public officials, bankers and cannabis companies with the aim of coming up with solutions to address this problem and help cannabis businesses pay their taxes and open bank accounts.

Another of Chiang’s recommendations is to form a multistate group to lobby Congress to ease federal restrictions on cannabis. At a news conference held Tuesday announcing the recommendations, Chiang said that without Federal deregulation, “a definitive, bulletproof solution will remain elusive,” but that that is not an excuse for inaction.

Over the last year, Chiang’s group held public meetings around the state, hearing from cannabis companies, banks, and public officials about their concerns.

The group’s report, released Tuesday, makes four recommendations aimed at addressing the issue. Cannabis business owners called the recommendations useful but incremental at best.

The main recommendation, the creation of a public bank owned by the state of California, also offers an alternative to profit-driven Wall Street institutions.

Creating a state-run bank will not be easy. The potential cost to the state is high, and the plan is not guaranteed to solve all the problems the industry is facing.

Another of the group’s recommendations to help local agencies collect marijuana tax payments, and to reduce the risks involved in transporting tax payments in cash, is that the state hire armored car services to pick up tax payments from businesses. The cash could then be deposited at banks on behalf of the state rather than cannabis businesses.

Chief executive of Oakland’s Dark Heart Nursery, Dan Grace, said being able to pay taxes without hauling cash to government offices would be helpful, but not a complete solution. “My payments to the government are at most one-quarter of my monthly payments, so that still leaves everything else. It still doesn’t solve the issue in a meaningful way,” Grace said.

The report also suggests the creation of a coalition made up of government agencies in states where marijuana is legal. The goal of the coalition would be to empower cannabis-legal states speak with one voice in Washington. Whether or not it can happen or if it would actually make a difference remains to be seen.

2017 was a year of disappointment for MJ Freeway. The seed-to-sale trailblazer finds itself dealing with frequent outages and dangerous data breaches that lead to increasingly dissatisfied customers and contract cancellations.

Recently, Nevada state announced that they will be parting ways with the company, only 18 months into their 5-year contract. This decision came after a period filled with controversy for MJF, and the press is already speculating about what it all means for MJ’s future.

MJ Freeway pioneered in the seed-to-sale software market. The company launched the first service back in 2010. Their innovation became a standard for the newborn legal cannabis industry and competitors have started to emerge.

Software as a Service (SaaS) specialized for the cannabis industry offers a powerful ally for retailers, who have to undergo strict regulatory audits. “Seed-to-sale reporting is an important step for bringing legitimacy to the nascent cannabis industry, as well as helping businesses navigate the often byzantine regulations on a state-by-state basis,” said Jeremy Berke, a columnist for Business Insider.

MJ Freeway still remains the biggest player in the space, owning more than 40% of the market. Their software is designed to be compliant with every state’s regulatory agency, providing data for every aspect of the cultivation and sale processes. Therefore, the system tracks data at all points in the cannabis supply chain, distribution, retail, or wholesale. That’s a mountain of data that’s hard to handle. As the industry is growing, so is pressure from local authorities, who want the software to be not only robust but reliable.

Outages, Data Breaches, and Breakdowns

Problems for MJ Freeway began in January 2017 when their servers were hacked, leading to a major cash of the PoS systems. In June, a source code leak led to a second security breach that drew a lot of attention from social media and the press. Connor Penhale, CEO of Compliant Cannabis said: “Once that risk is there, you’ve got a threat. Based on the track record that MJ Freeway has – do I feel confident that they can handle this one more big thing that they have on their plate?”

The company’s CEO and COO asked for support during this difficult time for the company. A video statement was released in which Amy Poisnett, MJF’s CEO, explained the technical nature of the problems. Jessica Billingsley, COO of MJ Freeway reminded: “What we need to do is to work to transition our existing legacy customers to our new platform because it’s a much-improved product and not as susceptible to this type of issue. It is not an exaggeration to say that we have spent more on security in a quarter than most of our competitors’ gross in a quarter.”

MJ Freeway and the Washington Cannabis Program Controversy

Despite MJ Freeway’s reassurances, the hard part might not be over yet. MJ Freeway’s Washington cannabis program, Leaf Data Systems was set to go live on November 1st. However, the state announced in the previous week that it will be postponed until January 2018.

This setback caused the press speculate even more on the future of the seed to sale giant. Spokane’s Spokesman-Review stated that the delay was a “Database Detour,” while Ganjapreneuer labeled the Washington delay a “Cannabis Armageddon Seed to Sale Halloween Scare.” David Busby’s Washington-based compliance software provider WeedTraQR predicted in a July blog that “Leaf Data system is barely ready for prime time… we’re predicting disaster.”

Currently, the state is trying to cut a deal with BiotrakTHC, who are reportedly reluctant to undertake the project after the involvement of MJF. So, in order to avoid further abuse or diversion to out-of-state markets, Brian Smith, spokesman for the Washington State Liquor and Cannabis Board (LCB) stated, “We’re very pleased with MJ freeway and the work that they’re doing.” Whether he means it or not remains to be seen.

Putting it All Back Together: The Future of MJ Freeway

MJF has a mountain to climb, as it has to deal with internal issues as well as repairing their reputation. Amy Poisnett said: “We understand our clients’ frustration and we apologize for the inconveniences.”

On a more defiant tone, J. Billingsley further added, “We’re not in this business for short-term wins. While we’ve been first to market, we’ve also been first to stumble… We literally invented seed-to-sale software, patented it. And all we do is to strive to do the right thing for our clients, to be part of the solution and to show the industry that we care.”

With less than nine months left before recreational cannabis becomes legal in Canada, analysts and investors are still unclear who the big winners and losers will be

If there’s one thing that’s still hazy in Canada’s nascent marijuana market, it’s how wide the margins are on that dime bag.

With less than nine months left before recreational cannabis becomes legal in the country, analysts and investors are still unclear who the big winners and losers will be. Some publicly traded pot companies don’t report how much a gram of dried bud costs them to make and if they do, the numbers aren’t uniformly calculated. Moreover, producer margins could start to shrink as provinces start to purchase pot wholesale.

Selling prices “will certainly cut in half perhaps from what they are now, and cost of production will matter,” said Mike Gorenstein, chief executive officer of Toronto-based Cronos Group Inc. “It’s not going to be 80 or 90 per cent margins forever.”

The pending margin squeeze comes as investor optimism over recreational sales has sent valuations soaring. Canopy Growth Corp., the country’s first marijuana unicorn with a market cap of more than $3 billion (US$2.36 billion), has seen its share price rise more than 80 per cent in the past 12 months, while Aurora Cannabis Inc. more than doubled. MedReleaf Corp. is up more than 90 per cent since its June debut.

Medical marijuana is currently sold direct to consumers for about $7 to $12 a gram, depending on quality. Prices for recreational pot could probably drop to $4.50 to $5 as provinces such as Ontario and Alberta plan to purchase marijuana wholesale, said Jason Zandberg, an analyst with PI Financial in Vancouver.

NO STANDARD

What the price drop will do to margins is nebulous because there isn’t an industry standard for reporting production costs, said Vahan Ajamian, an analyst at Beacon Securities Ltd. in Toronto. For example, it’s difficult to determine whether Canopy Growth’s reported costs of $2.78 a gram are being calculated the same way as MedReleaf’s $1.46.

Companies will probably disclose even less information about their costs of production in the coming months as producers competing for supply contracts will want to maintain a competitive edge, Zandberg of PI Financial said. It’s difficult to look at an earnings statement and try to extrapolate which companies will be successful in five years when looking at cash flow, earnings and price-to-earnings ratios, he said.

Some producers are focusing on lowering costs in order to help maintain robust margins.

Leamington, Ontario-based Aphria Inc.’s cash costs per gram were 95 Canadian cents last quarter and further cost efficiencies are pending so the company will be “in the driver’s seat” in terms of lowering the selling price without sacrificing margins, CEO Vic Neufeld said in an interview.

Companies are also looking to geographic diversity to make up for price declines in Canada.

OTHER MARKETS

“If a particular province sets wholesale prices too low, that’s OK, we have options,” said Aurora Cannabis Executive Vice President Cam Battley, noting global demand exceeds supply and the company owns a medical distributor in the European Union and is paid a premium for its products in Germany. “We’re in a sense inoculated against anything we don’t like.”

Canopy Growth expects provinces to purchase bulk products at a price “pretty close” to the current average in the medical market, said CEO Bruce Linton. While there will be some short-term pressure, the company has multiple markets, including medical and international, and is focused on different forms of marijuana that can eventually be sold at a higher margin, such as infused beverages, he said.

“This is a transitional thing,” Linton said by phone. “Over time, we can maintain our margins creating evolved products.”

Large producers that have established and expanded their operations to lower their costs will continue to do well along with smaller craft growers that can sell their products at a higher price, Cronos Group’s Gorenstein said. Companies that are still trying to raise capital to expand their operations may have a tough time competing. There will come a point when supply meets demand, and “there will be a very rapid price compression,” he said.

If margins shrink, companies that will be successful will need to make up the difference on volumes, said Chris Damas, editor of the BCMI Report in Barrie, Ontario.